Tipping Act from 1st October - Essential information for employers

With the Employment (Allocation of Tips) Act 2023 coming into effect on 1st October, employers will no longer be permitted to withhold tips from their workers. This new legislation introduces a statutory code of practice that requires businesses to distribute tips in a “fair and transparent manner,” passing on all tips and service charges without making any deductions.

The government anticipates that this law, which applies to all individuals working at the business—whether directly employed or through an agency—will enable workers to retain an estimated additional ￡200 million of their earnings.

Under the Tipping Act, employers must also develop a written policy outlining how tips are managed and ensure this policy is readily available to their workers. Additionally, employers will be required to keep a detailed record of all tips paid, as well as how they are distributed.

Employees will be able to enforce their rights through the employment tribunal system, which can publicly declare if complaints are well-founded and order employers to amend tip allocations or compensate workers for any improper handling.

Fairness and transparency in tip allocation

While the code stipulates that tips should be allocated fairly, this does not necessarily mean distributing them equally. Employers are encouraged to use a "clear and objective" set of criteria, such as:

• The nature of the role
• Basic salary
• Individual or team performance
• Level of seniority
• Length of service
• Customer intent

Employers are reminded to avoid discriminatory practices when applying these factors and to consult with workers to ensure the tipping system is viewed as “fair, reasonable, and clear.” The factors used must be included in the company’s tipping policy.

Transparency is key, with the Act requiring businesses to maintain detailed records of tip distribution for at least three years. Workers will have the right to request and view these records if they believe the system is unfair.

What does this mean for employers?

The Act represents an important shift in ensuring accountability for employers and clarity for workers. Any breach could result in compensation of up to ￡5,000.

The Act also modifies the definition of wages in the Employment Rights Act 1996 to include tips. This change makes employers liable for claims of unlawful wage deductions if they withhold tips.

Preparing for the change

Employers should begin taking steps to comply with the new Act now, given the lack of a transition period. This involves reviewing their tipping policies, consulting with workers, and establishing systems for recording tips and their distribution.

Employers should assess their current policies to identify areas that need adjustment and ensure managers and relevant staff are fully trained on the new requirements.

Ultimately, there is no one-size-fits-all approach. Each employer must determine what is fair within the context of their business.

If you are an employer seeking assistance with implementing the Tipping Act coming force on 1st October, please contact Sarah Jo at [email protected] for support.

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